Concept explainers
MANAGING YOUR WRITING
Direct Method
A friend of yours was looking at a schedule for the calculation of cash generated from operating activities prepared under the direct method and asked why
Indirect Method
A friend of yours was reading a statement of cash flows prepared under the indirect method and saw that depreciation expense was added when computing cash from operating activities. She is curious why depreciation is considered a source of cash. Write a brief memo that explains why depreciation expense is added to net income on the statement of cash flows and why it certainly is not a source of cash.
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